The Commerce Commission has decided that it will not appeal against the recent decision of the High Court in Commerce Commission v Avanti Finance Limited. The case related to the fee on full prepayment (or break fee) that Avanti charged to debtors who repaid …
Media Release
Issued 29 May 2009/no 133

Commerce Commission will not appeal Avanti Finance decision

The Commerce Commission has decided that it will not appeal against the recent decision of the High Court in Commerce Commission v Avanti Finance Limited.

The case related to the fee on full prepayment (or break fee) that Avanti charged to debtors who repaid their loans early. The Credit Contracts and Consumer Finance Act (CCCF Act) gives customers the right to prepay their loans. A creditor may charge a fee, but the Act says the fee must be “a reasonable estimate of its loss”.

The Commission had argued that the CCCF Act imposes an obligation on creditors, such as finance companies or banks who are in the business of making loans, to mitigate their loss arising from prepayment of loans by assuming that the prepaid funds are immediately re-lent. The High Court concluded that in this case, Avanti’s method of calculating and mitigating its losses arising from repayment was appropriate and therefore the fee charged was reasonable.

The Commerce Commission is responsible for enforcing the CCCF Act which governs personal loans, mortgages, credit cards and other consumer loan contracts. This Act is a relatively new Act and there are few judicial decisions relating to its fees provisions, so part of the Commission’s role is to seek clarification of the law.

“The Commission believed that the issues raised in the Avanti case were important in ascertaining the approach that a creditor should take when calculating a break fee charged on the early repayment of a loan,” said Commerce Commission Director of Fair Trading, Adrian Sparrow. “In
this case the High Court upheld the District Court view, but the Commission will continue to consider the reasonableness of break fee calculations, such as the mortgage break fees charged by a number of trading banks, on a case by case basis, and, where appropriate, put those break fee calculations before the Courts,” said Mr Sparrow.

Background

The High Court judgment relating to this case and the earlier judgment of the District Court are available in full on the Commission’s website www.comcom.govt.nz under Media Centre/Judgments.